Question 1

1. Stocks are less riskier than either bonds or bills.

True
False
10 points

Question 2
1. The total rate of return on an investment over a given period of time is calculated
by ________.
dividing the asset's cash distributions during the period, plus change in
value, by its ending-of period investment value
dividing the asset's cash distributions during the period, minus change in
value, by its ending-of period investment value
dividing the asset's cash distributions during the period, minus change in
value, by its beginning-of period investment value
dividing the asset's cash distributions during the period, plus change in
value, by its beginning-of period investment value
10 points

Question 3
1. A ________ is a measure of relative dispersion used in comparing the risk of
assets with differing expected returns.
standard deviation
coefficient of variation
chi square
mean
10 points

Question 4

1. The expected value and the standard deviation of returns for asset A is ________.
(See below.)
Asset A

12 percent and 4 percent

12.7 percent and 2.3 percent
12 percent and 2.3 percent
12.7 percent and 4 percent
10 points

Question 5
1. An efficient portfolio is a portfolio that maximizes return for a given level of risk
or minimizes risk for a given level of return.
True
False
10 points

Question 6
1. Lower (less positive and more negative) the correlation between asset returns,
________.
lesser the potential diversification of risk
lower the potential profit
lesser the assets have to be monitored
greater the potential diversification of risk
10 points

Question 7

1. Unsystematic risk ________.

does not change
can be eliminated through diversification
cannot be estimated
affects all firms in a market
10 points

Question 8
1. An investment banker has recommended a $100,000 portfolio containing assets
B, D, and F. $20,000 will be invested in asset B, with a beta of 1.5; $50,000 will be
invested in asset D, with a beta of 2.0; and $30,000 will be invested in asset F,
with a beta of 0.5. The beta of the portfolio is ________.
1.85
1.25
1.45
1.33
10 points

Question 9
1. Changes in risk aversion, and therefore shifts in the SML, result from changing
tastes and preferences of investors, which generally result from various
economic, political, and social events.
True
False
10 points

Question 10
1. In the capital asset pricing model, the beta coefficient is a measure of ________.

maturity risk
market risk
business-specific risk
unsystematic risk